This is a guest post from Gokul Padmanabhan, owner of Restoration Brokers of America. Gokul and I have known each other for about 7 years now. We started to talk approximately four years before I was ready to sell my business and we’ve stayed in touch over the past three years since the sale of my business. Having gone through the sale process myself, I can tell you how important getting “ready to sell” is and the questions Gokul poses below are at the heart of what matters to a potential buyer. The best time to prepare your business for a future sale is now. The changes you’ll make today will not only make your business more valuable when it comes time to sell, they will also make your business stronger while you still own it. Enjoy the article!
Answer These Questions to Make Your Business Stand Out
Everywhere you look right now in restoration, people are talking mergers and acquisitions. Conferences hold clinics and industry chats are alight with the idea that things are in motion for restoration businesses, and now is a surprisingly promising time to examine your business selling acumen.
Is this really the right time to sell? Do you know what your business is worth or even if it is sellable? Who’s buying, and what can you do to optimize offers?
The answers lie in understanding exit planning and what your buyer expects your business to bring to the table. Let’s examine the most common areas where buyers express concern. The more you and, by extension, your business are prepared to answer their queries, the better positioned your business will be when it’s time to sell.
For those uninterested in selling, your best model for a profitable, workable business that will succeed for years should still follow these quality standards. You are working to create a sustainable business model—whether you’re selling or staying put.
Have your sales been rising or declining over the past five years?
Buyers are looking for a business that has steady or increasing sales. They’re paying the seller for the return they’ll get on their investment, and they want to make certain the investment is safe. Your optimum selling phase is when sales are steady or slightly increasing. While dips and declines in profit can be explained, a steady sales decline creates an unsellable business.
Do you have good books and follow the GAAP principles?
Business owners succeed because they’re great at what they do, but if their books don’t reflect this success in a clear, standard manner, deals can fall apart quickly. Generally accepted accounting principles—GAAP—should be the standard by which all of your books are kept. When sellers come up with their own hybrid method for bookkeeping, the best business can lose its quality status. Bad books are the kiss of death, and inconsistent accounting practices fall apart during the due diligence portion of an acquisition. The minute a seller says, “we don’t do our books that way,” the buyer can’t easily connect the dots, and the company value drops.
Is the business too dependent on any key employee?
Many times, businesses rely on a go-to employee or production manager for survival. They’ve built a business around their top performers, which has served them well in the short term, but such practices can terribly devalue your business. You want a business independent of your employees. When top performers leave, your mitigation plan should include backfilling that position and moving forward. Your business must keep going.
Consider the business with a salesperson who brings in 40% of its annual sales. From a buyer’s perspective, relying heavily on a single employee is a risky investment.
Is the business dependent on a single revenue source or supplier?
Much like relying on a single employee, looking to an individual client or revenue source for the majority of your income is an unsavory risk for buyers. If a business earns 80% of its business from a single third-party administrator, their success is utterly dependent on that revenue stream. Seek to build a well-diversified revenue stream. No single source should contribute more than 10% of your business.
How do you generate sales, and do you have a marketing plan?
Your selling goal is to clearly document and prove to a buyer how you generate sales and how that process can continue with transfer of ownership into the future. When a buyer comes to the table to purchase your business, it’s not enough to say, “Well, the phone just rings. We’ve been in this town a long time.” If you are unable to clearly articulate your marketing strategies, the buyer cannot picture himself/herself running the business.
What differentiates you from your competitors?
Buyers will want to know what makes YOU different every time. Your best sales come when you can point back to your company values and mission. Showing your buyers how you’re like everyone else simply makes you look like everyone else. Tell your buyer what makes you more than just different from competitors; tell your buyer what makes you BETTER. Is it your customer experience? Do you have the best response turnaround times in the area? Show your buyers why your business is worth owning and how they’ll compare to the competition.
How is your online reputation?
The restoration industry is generally slow to establish its online business presence. In contrast, buyers are checking online reviews, and you must pay attention to your online presence and what your customers are saying. Work to ensure you are searchable and that the information buyers see when they perform an online search is positive. Strive for a minimum of 40-50 positive reviews across the online platforms where your business is represented. Work to make your online presence reflect the quality and success of your business.
What are three ways the business could grow in the future?
Buyers want to know how they can grow their investment, and if your answers are vague, the growth potential diminishes. YOU know your business, and you are the one to share its potential with buyers. Creating a vision of what your business is, is not a statement about what you have not accomplished, it’s a testament to the direction you’re moving and where your buyer could end up. If you’re unsure how to identify new growth possibilities, imagine someone gives you $100,000 today. How could you use every dollar to grow your business? Show the buyer and help them expound on your vision.
Why are you selling?
The number of owners who cannot answer this question may astound you. Put your best foot forward and weave a narrative that makes your buyer want to be part of what you’ve created. People are buying a real business, and they need compelling and personal reasons to make that investment. “I’m selling because I’m working 80 hours a week and completely burned out,” is the wrong answer. Dig deep and create an answer that brings your buyer into your story. They should see themselves picking up the reins and moving forward with your legacy.
What does a day in your life look like?
Buyers want to know how owners contribute and what an ownership role looks like. They want to know that you’re playing a true owner/CEO role. Give the buyer a clear vision of what their day will be. When that role is appealing and clear, the value of the business increases in the buyer’s eyes.
What have you done to make the business less dependent on you?
No buyer wants to purchase a business where the owner is the center of everything. When the owner is everything, the owner’s departure means the failure of the business. When a buyer can see a business is independent of its owner, the value increases. Position your company to run independently of your constant presence.
Your best business practices will translate to a prime position for selling your business. Start working now to put the pieces in place for successful growth, and when the time comes, you’ll be ready to court buyers and optimize the sale of your business.
Scott Miller has been in the restoration industry since 2005 and focuses on helping owners grow revenue, improve profitability, manage cash-flow and develop a culture of accountability with their teams. He is a certified coach with Best Year Yet and The Center for Executive Coaching.
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